The company said that additional analysis of data from a key well in the British islands over which Argentina claims sovereignty did not support initial indications of an oil discovery, almost halving the value of its shares.
"This is a major blow to Desire and the prospectivity of the North Falkland Basin," said Evolution analyst David Farrell.
Desire said on Thursday it believed it had made the second ever oil discovery at its Rachel North well in the North Falkland basin, after Rockhopper, another explorer, made the first at its Sea Lion prospect in May, raising hopes of further finds in the South Atlantic islands.
Desire's disappointing well at Rachel, however, is the latest setback to temper excitement generated by the controversial exploration of the Falklands, to which Argentina objects.
The most recent blow came on Friday when leaked U.S. documents showed ExxonMobil, the world's largest oil company not owned by a government, said oil resources in the islands are insufficient to be profitable.